Pricing your services. It comes with the territory of running a business.
But how do you know the right price to charge? Sometimes it can feel like a guessing game. But it doesn’t have to.
The first step is to determine your total expenses. Once you know exactly how much your expenses are each month, you can more accurately calculate what you should be charging to reach revenue targets.
Next, take some time to hone in on exactly how much money your business earns every time a customer comes in for a class. This is called earned revenue per visit, or ERPV.
By knowing your ERPV, you gain valuable insights into how to price your services. These numbers tell the story of whether you’re charging enough per class or appointment to cover your basic operating expenses. If you’re not, you can revisit your pricing structure to better accommodate your business goals. Here’s how it works.
How to find your earned revenue per visit
To determine your ERPV, dig into your data and compare revenue against class attendance. Then divide your total earned revenue for any given month by the number of paid visits during that same month.
For example, let’s say you offer 40 classes every week. Each class can accommodate up to 20 people, for a total of 3,200 spots available each month. On average, your classes are 65% full. Of that 65%, 70% of students are members. Each member comes to class around nine times per month, making your ERPV $8.88.
Don’t let the math scare you. Broken down, the formula is simple:
3,200 Spots Available x 65% Capacity Used = 2,080 spots filled
2,080 Spots Filled x 70% Members = 1,456 spots filled by members
1,456 x $8.88 ERPV Members = $12,929.28 Earned Revenue (revenue you’re earning from your members)
The combination of ERPV, attendance, percent capacity uses, and expenses will give you clear visibility into what you should be charging for your services.
The importance of knowing your earned revenue per visit
Depending on your expenses each month (e.g. rent, payroll, payroll tax, utilities, insurance, cleaning supplies, etc.), that $12,929.28 might mean a big hole to fill with drop-in or dynamic pricing customers, retail, workshops and teacher trainings—all of which can oscillate.
Contrarily, earned revenue is a consistent indicator of the health of your business. Aim for 70% of your expenses being covered by membership earned revenue. If they’re not, it may be time to use your ERPV as a guide to increase your prices.
With iKizmet, you get more visibility into the data you need to drive your business and make informed, factual decisions.
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